If you’re a trader using a technical trading strategy, then there are some key trading indicators you should know. Perhaps you’re losing too many trades, and you need an indicator that can help you to start making the right trading decision. This article will educate you regarding some of the best forex mt4 indicators used by professional traders. Proper application of any or combination of these indicators will help you to start winning trades. However, there's an ample number of indicators used by different traders, but here, you will learn the best of these indicators. They’re easy to apply and understand. Below are the essential Trading Indicators every trader should know:
The Moving Average
The moving average, otherwise known as MA or simple moving average (SMA), is a type of indicator that helps to determine the direction in which a current price trend is moving. An SMA trend is not being affected by short-term price spikes. The principle behind this indicator is that it combines the price point of the trader’s financial instrument over a particular time frame. It’ll then divide the result obtained by the number of data points. All these are programmed; hence, they are calculations you can’t see on your screen. The only thing you’ll see is the trend line. Since the SMA trend line depends on the time frame, the line will change as you navigate through different time frames. Therefore, for a more accurate analysis, you need to do a top-down analysis. Such analysis requires that you check from the higher time frame down to the lower time frame and see what your moving average gives. If you find a correlation between the higher and lower time frame regarding the trend direction, you can then make your trading decision to go long or short.
The exponential moving average (EMA)
This is another crucial Trading indicator used by professional technical traders. However, unlike the SMA, EMA responds more to new information, including a slight price change. It focuses more on recent data points and not much on old historical data. Most professional traders often use EMA with other indicators to confirm significant market movement and to also ascertain their authenticity. They do this to avoid being trapped by fake market movement. Sometimes, the price will pretend to move in a particular trend only for it to reverse unexpectedly. Many traders often get caught by this fake move. Therefore, professional traders use EMA with other indicators to avoid getting into such a trap and determine the correct direction of a trend. Some of the most notable EMA is 12- and 26-day EMAs, as well as 50- and 200-day EMAs. The former is used for short-term averages, while the latter is used as long-term trend indicators. Therefore, if you want to enter a short-term trade, you should adopt the 12- and 26-day EMAs, and if you're going to enter long-term trade, you should adopt the 50- and 200-day EMAs.
Bollinger band is an easy to understand trading indicator. This indicator provides a range where the price of assets trades. It is a two lines indicator. These lines are separate, with one being up, and the other being down. They’re therefore called the upper and lower bands. They signify strong support and resistance points on trading charts. These bands are affected by the price of the commodities. Therefore, the width of the bands is determined by the recent volatility. If the bands are closer to each other, it means that the financial instrument is less volatile. More so, if the width is wide, it is an indication that the market volatility is high. Professional traders use Bollinger bands to determine whether an asset is still trading in its usual level, or it’s trading outside the expected level. They’re used mostly by long-term traders to determine long-term price movements. If you check your trading chart and you find that a price is continually moving outside the upper band, it may be an indication of an overbought market. On the other hand, if the price continually moves below the lower band, that may be an indication of an oversold market.
Relative strength index (RSI)
If you need an indicator that can help you identify trading momentum, you can opt for the RSI. It is also used by traders to determine market conditions as well as to detect dangerous price movements. RSI signals are usually indicated as a figure falling between the ranges of 0 and 100. Therefore, if you find an asset around 70, it may be an indication that the asset is overbought. On the other hand, any asset you see around the 30 levels can be considered oversold.